Auto-enrolment and the associated duties on employers represent the biggest-ever shake up in retirement and pension provision in the UK in the last 100 years.
The next major staging date is April 2014 and applies to businesses employing between 50 and 249 employees; as it can take a minimum of six months to get ready for implementation, SMEs are being urged to start the process now.
Nottingham-based EBS Accountants has teamed-up with Independent Financial Advisers, CDG Financial Services Ltd, to produce eight top tips to auto-enrolment to help SMEs prepare.
1. Find out your company’s staging date
The staging date is the date by which an employer needs to comply with the duties and is based on the number of employees on the PAYE scheme. The largest UK companies were the first to begin enrolling staff, with the next staging date of April 2014 estimated to affect some 25,000 employers, who have until April 2015 to ensure compliance with the new auto-enrolment duties. Employers with 30 to 49 employees have from August 2015 until October 2015 to auto-enrol employees. Those with up to 30 staff then have until April 2017.
2. Plan early
It can take from 12 to 18 months to get ready for auto-enrolment, depending on the size and complexity of the businesses. It will certainly take between 6 and 9 months to complete the project set-up. Begin by identifying the staging date that will affect the business based on the number of employees. Then assess the workforce to identify all ‘eligible workers’ – those aged between 22 and the State Pension Age, are working in the UK, and who earn more than £9,440. As well as assessing the workforce, you need to choose a provider and set the contribution levels.
3. Talk to employees
All employees need to be told about the changes, in writing, either by paper letter or email. This must include the details of the pension scheme you use and their contributions, and where employees can go to for more information (Pension Regulator’s website for example) and NEST (National Employment Savings Trust).
4. Check your current scheme as it may not be compliant
Don’t assume the existing pension provider, if you have one, will be able to help every employee. Have a conversation with your pension adviser as soon as possible to establish compliance and what they can do to help with a scheme or schemes that will need to comply with the auto-enrolment requirements. A key issue is the definition of earnings, as auto-enrolment can be based on four different earnings options and it important that the correct one is chosen for your company. Most private pension schemes take into account basic earnings, excluding additional bonuses or overtime, and with an initial band of non-pensionable earnings.
5. Check your payroll can cope
Not all payroll systems will cope, so ensure the payroll provider and pension provider are exchanging data in the right format. Decide if the payroll can in fact handle the additional obligations will be met and complied with, or whether this is something the pension provider will look after. Some of the bigger employers have taken the step to create records that will demonstrate to the Pensions Regulator that you have fully complied with the obligations is in place.
6. Design it to suit your company’s needs
Strategically, from an HR point of view, or from a business planning perspective. It isn’t a case of one size fits all so work with the pension adviser to devise a relevant solution that works for the business.
7. Use postponement rules
Employers can choose to delay the assessment of workers for auto-enrolment for any period up to three months. This is known as ‘postponement’ and gives the employer flexibility over the date employees are enrolled into the pension scheme. It can be a powerful tool for staff employed on a temporary contract and to stagger the impact of auto enrolment and staging.
This can help a company during busy periods, can allow time for the all-important communication, and potentially reduce costs.
8. Administrative duties
The auto-enrolment regulations are aimed squarely at employers. It is their responsibility to manage every step of the process.
Employers must:
• Make sure that they can auto-enrol eligible jobholders into a QWPS (Qualifying Workplace Pension Scheme) or QQWPS (Quality Qualifying Workplace Pension Scheme)
• Register with the Pensions Regulator that their scheme is a qualifying automatic enrolment scheme and re-register opted out staff at three yearly intervals
• Provide jobholder information to eligible and non-eligible jobholders
• Provide the pension scheme or pension provider of information that they will need to set up a member record
• Automatically enrol eligible jobholders and deduct/make payments until opt-out or leaving the scheme, and re-enrol opt outs
• Deduct payments from jobholders, make payments themselves and make any refunds to those jobholders who subsequently opt-out
• Keep adequate records – e.g. of auto-enrolment processes/opt-out processes and those who have opted out.
Employers must NOT:
• Be seen to offer advice
• Influence a jobholder’s decision not to join the scheme
• Be the source of the opt out form
• Encourage jobholders to opt out
• In particular, do not use financial incentives/disincentives to persuade/dissuade employees when considering whether to join or opt out of the pension scheme
• And they must not participate in ‘prohibited recruitment conduct’ – where an individual is employed on the basis that they will opt out of the pension scheme.
Jill Evenden, MD of EBS Accountants, comments: “It is tempting for businesses affected to look at the staging dates and leave taking any action to plan for auto enrolment. However, they should take advantage of the time available to them to get auto enrolment underway, so that they can be sure of compliance.”
